U.S. stocks cool, but rally continues overseas

NEW YORK -- Wall Street stocks turned lower Tuesday as investors examined the U.S. government's plans to spend $250 billion to buy stock in private banks and collected profits from the previous day's massive advance. The Dow Jones industrial average fell modestly points a day after its record 936-point jump.

Profit taking started creeping into the market after the Dow surged more than 400 points at the opening, and it was expected that some investors would take some money out of the market after such a massive gain. Moreover, it was anticipated that Wall Street would continue to see jittery trading in the weeks and perhaps months ahead because of worries about the weak economy.

"We don't know if the bottom is in," said Lincoln Anderson, chief investment officer and chief economist at LPL Financial in Boston, referring to the market's advance Monday after huge losses last week. "We certainly expect heightened volatility for a fair amount of time while we sort out just exactly what's going on."

Investors had snapped up stocks Monday in anticipation of the government's plan. President Bush said Tuesday the government will use a portion of the $700 billion bailout to inject capital into the nation's major banks, which have been slammed by souring mortgage investments. The move follows a similar one announced Monday by European governments to invest about $2 trillion in their own troubled banks.

Investors are hoping extraordinary steps by government officials will help resuscitate stagnant credit markets.

"The tone is cautious," Anderson said. "I don't think anybody is pile driving into the market and doubling up."

The revised bailout plan differs from the original in that it aims to recapitalize banks, not just buy the troubled assets off their books at prices that could leave the banks with losses.

"This begins to penetrate the core of the problem," said Peter Cardillo, chief market economist at New York-based brokerage house Avalon Partners Inc.

But, he said, "there will be a point in time where the euphoria of the bailout plan begins to wear off and the market begins to face reality. And that reality is likely to be a sour earnings season, and that the economy is in recession."